Back in 2022, stablecoins were still an emerging topic. Yet, they stirred enough flurry for the Hong Kong Monetary Authority (HKMA) to release a discussion paper on crypto-assets and stablecoins, calling for feedback from industry stakeholders.

Within its pages, the HKMA outlined its thoughts on developing a regulatory framework for payment-related stablecoins, which could be a priority.

At the time, stablecoins were seen as having the potential to become a widely accepted form of payment, with the regulator also signalling a need for flexibility, leaving room to expand the scope of regulation as the market evolved.

What followed quickly after was a wave of volatility in the stablecoin market. Most notably, the collapse of TerraUSD’s value. Several crypto exchanges, including FTX, also came under fire. The need for a regulatory regime became undeniable. But was there enough demand to justify it?

The response to the discussion paper was sound. The HKMA received 58 submissions, with most respondents expressing support for the proposal to bring stablecoins within the regulatory perimeter.

Fast forward to today, and 1 August 2025 represented a milestone moment with the launch of Hong Kong’s long-awaited Stablecoins Ordinance, unveiling one of the world’s most closely watched regulatory frameworks for crypto assets.

What is the Stablecoins Ordinance all about, though? And what’s happening on the Western front with the GENIUS Act?

A Closer Look at Hong Kong’s Stablecoin Licensing Playbook

The Stablecoins Ordinance, which came into effect on 1 August 2025, sets out stringent requirements for prospective issuers. Only companies incorporated in Hong Kong or locally licensed banks can apply, and they must hold at least HK$25 million in paid-up share capital.

Issuers must also maintain 100% reserve backing, held in segregated, bankruptcy-remote trust accounts, and allow token holders to redeem at par value within one business day. These safeguards are in place to prevent the kind of collapses that have plagued the crypto sector, ensuring that stablecoins live up to their namesake.

The framework also subjects issuers to the same anti-money laundering and counter-terrorism financing rules as traditional financial institutions. This includes real-time transaction monitoring and compliance with the Travel Rule.

To support its rollout, the Hong Kong Monetary Authority (HKMA) published a series of detailed documents tailored to stablecoin issuers. These include two finalised guidelines on the supervision of licensed stablecoin issuers, as well as dedicated guidance on anti-money laundering (AML) and counter-financing of terrorism (CFT) compliance.

An explanatory note was also issued, outlining the licensing process and key requirements under the new regime. The HKMA invited applications from parties who “consider themselves sufficiently ready and wish to be considered,” with a submission deadline set for 30 September 2025.

As of 29 July 2025, no licenses have been issued, with the first batch only expected in early 2026. According to Darryl Chan, Deputy Chief Executive of the HKMA, only a limited number of licenses will be granted in the initial round. Initial reports indicate that over 50 firms have announced plans to issue stablecoins.

The HKMA has expressed that in the future, the public can refer to its register of licensed stablecoin issuers, and those who hold unlicensed stablecoins are at their own risk.

Now, how does Hong Kong’s regulatory approach differ from the United States’ GENIUS Act, which was signed off by President Donald Trump on 18 July 2025?

The GENIUS Act Sets the U.S. Path for Stablecoin Regulation

At its core, the GENIUS Act establishes the first-ever federal regulatory framework for stablecoins in the U.S., mandating 100% reserve backing using liquid assets such as U.S. dollars and short-term treasuries.

The White House issued a fact sheet on the GENIUS Act on the same day, which gives an elaborate yet clear breakdown on how it would work.

Issuers are required to publicly disclose reserve compositions on a monthly basis, adhere to strict marketing rules, and refrain from any implication that their tokens are government-backed, legal tender, or federally issued.

In the event of insolvency of a stablecoin issuer, the GENIUS Act prioritises consumer claims over other creditors, which is said to deliver the “final backstop towards consumer protection.” The GENIUS Act also aligns with State and Federal stablecoin frameworks.

The legislation also aims to protect and reinforce the U.S. dollar’s role as the world’s reserve currency. By requiring that stablecoins be backed by U.S. debt instruments, the Act drives demand for treasuries and also anchors digital asset growth to the strength of the dollar.

From a compliance standpoint, the GENIUS Act brings stablecoin issuers under the scope of the Bank Secrecy Act, obligating them to implement effective anti-money laundering (AML), sanctions, and customer verification programs.

Issuers must also have the technical capability to seize, freeze, or burn payment stablecoins when deemed necessary under legal requirements, marking a clear intersection between stablecoins and national security enforcement.

New Developments on Stablecoin Ordinance Sparking Concern

Closer to home, industry stakeholders in Hong Kong have raised concerns that stringent customer identification requirements could hinder the effective adoption of stablecoins. This, in turn, could diminish their appeal in the global digital finance landscape.

Market participants have pointed out that the finalised KYC rules, which require issuers to verify the identity of every stablecoin holder, could raise privacy concerns and potentially slow the broader adoption of the digital asset.

Bo Tang, Head and Assistant Director at the HKUST Institute for Financial Research, noted to Reuters that the rules could pose operational challenges, especially for businesses involved in cross-border payments.

He added that the HKMA’s strict regulatory stance may also be a response to recent speculative activity in local financial markets, where shares of companies linked to stablecoins spiked earlier this year but dropped sharply after the bill was passed.

Balancing the Fine Line in Market Reach, Innovation & Stability

The success of these regulatory frameworks will ultimately hinge on their ability to strike a delicate balance,  encouraging innovation while safeguarding and attracting consumers.

Hong Kong’s recent stakeholder concerns around stringent KYC requirements underscore the trade-offs at play. Regulate too tightly, and regulators risk stifling the very innovation they aim to legitimise. Operate too loosely, and they risk opening the Pandora’s box of failures that brought down TerraUSD and FTX in the past.

The choices made by Hong Kong, the US, and other markets will help determine whether stablecoins truly live up to their name.

Featured image: Edited by Fintech News Hong Kong, based on image by freepik on Freepik